Ukraine cuts key interest rate amid receding inflation risks

By bne IntelliNews April 21, 2016

The National Bank of Ukraine (NBU) cut its key lending rate from 22% to 19% on April 21 in the first reduction since September, and encouraged hopes of further cuts if recent disinflation holds and the International Monetary Fund (IMF) resumes its blocked $17.5bn credit programme.

The cut came unexpectedly, with no economists in a Bloomberg survey predicting the
move. However, the NBU said it was made possible by "a significant easing in risks to price stability - inflation was lower than the central bank expected in the first quarter", according to a statement on the regulator's website.

"Should risks to price stability abate further, and if Ukraine secures the successful completion of the second review under the [IMF] Extended Fund Facility Arrangement, the NBU may move ahead with monetary easing," the NBU said in a statement.

Reiterating its 2016 inflation goal of 12% and 8% by the end of 2017, the NBU said the "key risk now is a delay in restarting cooperation with the International Monetary Fund".

Consumer-price growth slowed in March to the lowest level in 1 1/2 years, while the appointment of a new Ukrainian government under Prime Minister Volodymyr Groysman on April 14 has helped calm weeks of political turmoil.

For its part, the IMF said it is ready to resume its cooperation with Ukraine once the new government affirms the policy goals of its predecessor. So far, two tranches totalling almost $3.4bn have been withheld since September.

However, the fund's continuation of the bailout programme first requires the approval by the parliament in Kyiv of 19 outstanding law bills, which President Petro Poroshenko said earlier he hoped would be passed by April 22.

While the new Finance Minister Oleksandr Danylyuk said the next $1.7bn tranche could arrive in May, analysts say it is unlikely that the government will see any fresh cash before the third quarter.

Speaking to media on April 21, NBU governor Valeria Gontareva said an IMF mission was expected to arrive in Ukraine in the coming days.

Related Articles

Raiffeisen to file lawsuit against new Croatian banking law

Austria's Raiffeisen Bank is preparing to file a complaint at the Croatian constitutional court later in July against a recent law that aims to declare thousands of its loans to Croatians void, ... more

94% of creditors of Azerbaijan's IBA approve debt restructuring plan

An overwhelming majority of creditors (93.9%) to the International Bank of Azerbaijan (IBA) approved the bank's ... more

Lebanon becomes European Bank for Reconstruction and Development shareholder

Lebanon has become the fifth member country from the Southern and Eastern Mediterranean (SEMED) region to join the European Bank for Reconstruction and Development (EBRD), becoming a shareholder with ... more